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I’ve been the Australian Agricultural and Resource Economics Society meetings which were in Coffs Harbour this year, as the New England branch put them on. A nice change from the usual capital city locations, though this is the rainy season in Coffs just as it is in Brisbane.

One Coffs Harbour icon did not live up to my memories of the distant past[1]. The Big Banana isn’t very big. For me, it’s always been the exemplar of Australian bigness, but at 40 years old, it belongs to the Triassic era of Big Things (along with the Big Trout at Adaminaby, which I like a lot). The Big Prawn and so on are on a more Jurassic scale, and the Big Merino at Goulburn is positively Cretaceous: the ultrasaurus of such things.

fn1. I’ve driven through Coffs quite a few times, and not realised this, but that’s because I didn’t notice the Banana even when I was vaguely looking for it, expecting, as I did, something much bigger.

My piece in todayâ€™s Fin, over the fold, brings together arguments about the Kimberley canal project, which has been debated here on the blog. As usual, I got a lot out of all the comments, whether or not this is obvious in the published article. Thanks to everyone who contributed to the debate.Read more…

The government’s position on the Rau case seems pretty clear. Ms Rau was an ‘illegal’, that is, a person found to be in Australia and unable to satisfy the authorities that she had a legitimate right to be here. As was established in apartheid South Africa, where the term originated, illegals have no human or civil rights. They can be locked up in atrocious conditions, denied contact with the outside world and so on. Now the authorities are satisfied about her status, and she has been duly released.

Many commentators, including bloggers, have insisted upon both the term ‘illegal’ and the fact that such people have no human rights. All that is new is the discovery that an ‘illegal’ is anyone the government chooses to detain.

The wheels are coming off Bjorn Lomborg’s attempt to undermine the Kyoto Protocol. The Economist, which backed Lomborg’s exercise, published an interesting piece on climate change recently, noting that some members are dissenting, and ending with the observation, from Robert Mendelsohn, a critic of ambitious proposals for climate change mitigation, who worries that â€œclimate change was set up to fail.â€?. This was my conclusion when I reviewed the book arising from the project.

It’s a pity, because, done well, the Copenhagen project could have been a really good idea, and even as it is, a lot of valuable work was done.Read more…

While researching desalination, I found this interesting presentation (big PPP file) from the Water Corporation, including (slide 22) an estimated cost of $6.10 for a Kimberley pipeline with a capital cost of $11 billion[1]. It’s from a 2004 GHD report, so there’s no question of its being a political stunt. The pumping requires two 600 MW power stations, which suggests (if my mental arithmetic is right) around 50kw-hours for each Kl of water delivered. I’ve extracted the relevant slide here.

As an aside, I saw in the Fin that the proponents are suggesting diverting as much as 80Gl of the flow to irrigation along the way, leaving only 120/Gl for Perth. It’s unrealistic to expect any contribution to the capital costs from irrigation users, so the entire capital cost would have to be spread over the 120/Gl supplied to Perth, and the unit pumping cost would probably also rise. The delivered cost could easily exceed $10/Kl.

Further update Rob’s source puts the iceberg option at $3.20/kl, but I’ve found another study that puts it at $17.00. So a canal at $10/kl would split the difference between these two.

fn1. Either the implied rate of return here is well below the one I used or the capacity is higher. I’d guess they are assuming bond financing and low depreciation. Still this sounds like a more realistic figure than the $2 billion Tenix estimate being used by Barnett. The power stations alone would chew up most of that.

What do you do if you hear that the bank that holds your savings is in difficulty? Unless you want to lose your money, you keep as quiet as possible and unobtrusively shift your deposits elsewhere. That’s what small-country central banks are doing with respect to US dollar-denominated securities.Nouriel Roubini has comments and reproduces much of a Financial Times story on this point.

Reader Nic White asks for some comments on WA Premier Geoff Gallop’s desalination plan, and I’m happy to oblige, as this is a topic I’ve been meaning to do some work on. We’re talking here about about desalinating seawater or groundwater for human use, rather than schemes for reducing salt inflows to river systems like the Murray-Darling, another big topic in itself.

There are two basic ways of going about this. One is distillation. The most common approach to distillation is to evaporate the water, leaving salt and other pollutants behind, and capture the steam, but freezing and vapour compression. The other is to separate pure water using reverse osmosis or electrolysis. The first approach is the traditional one, but it’s inherently energy-intensive, so unless you have a cheap source of waste heat, it’s becoming outdated. The top candidate at present is reverse osmosis, which involves passing the water through a membrane, and using pressure to reverse the normal osmotic flow from high salt concentration to low. The current energy cost is about 4.5KwH for each Kl of seawater desalinated (the cost increases with the salinity of the source). Electrical energy is required, so this would come in around 25c/kl. The main operating cost comes from the need to replace the membranes.

I found this report (1.2 Mb PDF) which focuses on small scale plants for remote areas, up to 50/kl a day or around 15Ml/year. I assume there are significant scale economies beyond this, but it’s worth noting that, unlike large-scale engineering works, desalination is an incremental option, so you shouldn’t have problems of excess capacity. Operating costs are estimated at 65c/kl for a source with 2000mg/l up to $1.89 for 35 000 mg/l (seawater), for an output salinity less than 500mg/l. I’d guess the optimal way to go would be to accept more saline output and dilute it with fresh water. At a rough guess, I think a larger scale plant could produce water with operating costs of $1/kl

Capital costs are about $1600/kl/day or about $5/kl/year for small scale plants. That’s $5 million for each GL of annual capacity, compared to $10/GL in the unlikely event that the canal alternative could be delivered for $2 billion[1]. Assuming BOOT financing as I did for the canal (a high-cost option, but I want to be fair), the annual capital charge would be around 70c/kl, for a total of $1.70/kl, before reticulation and any additional treatment.

At that price, desalination is a pretty expensive option, and I’d expect to see some fairly dramatic reductions in optional water uses, like watering lawns. Before going to seawater desalination on a large scale, it would be sensible to work through the cheaper options, such as conservation, repurchase of irrigation water and use of groundwater in appropriate locations. This large PowerPoint file has some interesting data.

The availability of desalination as a backstop also suggests we need to take a sceptical look some of the more overblown rhetoric implying that urban Australians are going to run out of water. If we conservatively put the cost of large scale desalination up to $2.50/kl and assume water use of 200kl/person/year (you could manage a suburban lifestyle, including a water-efficient garden but no lawn on half that) it’s still only $500/person/year or $1500 for a three-person household. Not trivial, but cheaper than broadband or cable TV.

fn1. In my post, I suggested staged construction costs of $3 billion (still v. conservative) which gives a capital cost of $15/kL capacity and an annual capital charge of about $2/kl.

It’s time for the regular Monday message board, where you are invited to post your thoughts on any topic. I’ll probably be fairly quiet this week, as I have to give a couple of conference papers, so feel free to take up the slack

I seem to have lost trackback capacity – people are linking but they are not showing up as trackbacks. If any readers can automagically divine the source of my problem, I’d be very grateful. My host recently rearranged my directories, putting the WordPress blog at root level to fix the RSS feed, so perhaps I’ve gained on the roundabouts and lost on the swings.

Blood Matters by Matthew Klugman is a fascinating history of the Red Cross Blood Transfusion Service in Victoria. As well as being of great interest in itself, it yields lots of insights into the role of volunteers and social social solidarity, particularly in relation to the “gift of blood”.

The story ends in the 1990s, when organisations that had served Australia well for decades were swept away in a tide of managerialist and market-oriented reform. The Victorian service was merged into a national body, while Commonwealth Serum Laboratories, the government organisation that had processed blood was privatised on terms that were grossly unfavorable to the public. It’s arguable that this is all for the best. Certainly the quality of Australian blood supplies remains high, and the ethic of blood donation is still strong. But I can’t help feeling that in this, and many other respects, we are living off social capital accumulated in the past.

This Sun-Herald front page “exclusive” by Matthew Benns is one of the most despicable pieces of journalism I’ve seen in a while. Taking the eminently forgettable occasion of Prince Charles’ visit to Australia, Benns decides to chase down the disturbed young man who shot blanks at the Prince with a starters pistol during his last visit 11 years ago. The man has turned his life around and recently qualified as a barrister. As the story makes clear, all he wants to to is forget about the whole business.

Certainly 11 years ago was a traumatic experience and is something I don’t want to bring back those memories again … To think about it even now unsettles me a little bit … what happened back then was extremely traumatic and the effect it had on my family was deeply upsetting.”

The other people quoted in the story, including then premier John Fahey and his wife seem equally unhappy about revisiting it.

Faced with this kind of response to a story idea, a responsible journalist and editor would have quietly killed it. But not Benns or the Sun-Herald edito. Their idea of letting the guy move on is to splash his picture all over the front page. I am seriously considering cancelling my subscription as a result of this.

It looks as if the WA election may turn on a PPP scheme: Liberal leader Colin Barnett’s proposal for a canal bringing water from the Kimberleys to Perth. This seems to me like complete lunacy. The estimated construction cost is $2 billion, but given a 10-year staged construction process, accumulated capital costs will be closer to $3 billion by the time the first water flows. The private owner will want a nominal return of at least 10 per cent, and depreciation of 4 per cent[1]. That’s more than $400 million a year in capital costs alone, or something like $800 a household. I think a saw an estimated water flow of 200 GL, which suggests $2/kl in capital costs.

But that’s just the start of it. Water is heavy. Every kilolitre of water is a tonne of matter that has to be transported nearly 3000km with no assistance from gravity. I have no idea how much this would cost, but I’d be amazed if it could be done for $1/kl. And all of this is before treatment and reticulation, and without even thinking about evaporation and seepage, environmental issues, native title, compensation for non-indigenous freeholders and so on. Desalination is considered expensive at $1-2/kl but it looks like a marvellous bargaing compared to this.

The proposed contract is take or pay, so if demand falls short (this scheme will supply around 400kl/household, more than total consumption for many) the loss will be borne by existing public water suppliers.

Barnett has apparently committed himself to the scheme without any sort of feasibility studies, and, according to the Fin, scored a big win with the TV audience in his debate with Geoff Gallop by doing so. But, on the evidence of this scheme, he’s unfit to be trusted with a footy club raffle, let alone running a state government.

One interesting feature of this kind of scheme is that I’m in agreement with the Institute of Public Affairs. We have very different views on infrastructure policy in general, but we can both recognise a boondoggle when we see one.

Update 5/04 The Fin quotes a Treasury report that estimates the cost at $6.50/kl which includes higher construction costs. That sounds about right to me, and confirms my conclusions about Barnett. The story says the $2 billion promise was based on a proposal from Tenix (the planned private partner) that was exceptionally sketchy – apparently they didn’t even know the route of a major gas pipeline in the area.

Further updateRob Corr is all over this story. For what it’s worth, I’d judge that Barnett has a few days left to back off the idea and claim he’s been misunderstood. Any longer than that and he’s better off brazening it out all the way to the election. But three weeks is a long time in politics.

fn1. It’s supposed to be a BOOT apparently, so the capital will have to be amortised over 25 years or so, making 4 per cent a lower bound.

In his push for Social Security privatizationchoicepersonal accounts abolition, George Bush is raising the prospect that, some time around 2050, Social Security will go bankrupt. This claim has been refuted quite a few times, so let me raise a different answer.

If you’re a young working-age American, don’t routinely pay your credit card balance(s) down to zero each month, and don’t have top-flight health insurance, it’s odds-on, based on recent experience[1] that you’ll go bankrupt at some point.Read more…

There’s lots of interesting issues under discussion at present, but, inevitably, vigorous discussion is sliding into flamewar. No individual comment has been offensive enough for me to intervene, but there’s a lot of shouting going on. That tends to reduce comments threads pretty rapidly to repetitive exchanges between two or three people – entertaining for a little while, but a turn-off after that. Could I ask everyone involved to take a deep breath and avoid any personal criticism for a while. There’s plenty of meat left in these issues, I think.

I normally ignore OECD reports on the Australian economy, since they are in essence, a Paris republication of the Australian Treasury policy line of the day. The OECD is largely staffed by officials from national treasury departments on temporary postings, and its primary source in consultations is the Treasury. If there has been an instance of substantive disagreement between the OECD and the Australian Treasury in the past 30 years, I’m not aware of it (corrections welcome on this!). Of course, if you think Treasury is always right, this isn’t a problem.

The latest calling for a renewed push on reform and so on, fits the pattern perfectly. But there was one para that caught my eye, and so I’ll try to dig out the report.

The health system, it said, needed more market incentives and a strong user-pays approach.

Private health insurers should be able to cover risks outside hospitals, while there should also be less reliance on paying doctors on a fee-for-service basis, which encouraged them to over-service their patients.

This seems entirely self-contradictory, but consistent with my general view of the OECD. Fee for service is the only real “user pays” system, since a privately insured person faces exactly the same incentives as someone consuming free public health services. On the other hand, concern about medical over-servicing and support for central planning as a method to control it has been a characteristic feature of the Treasury/Finance view for many years. But, I’ll have to read the whole thing.

Update Treasury is pretty well-informed about the Australian economy, and likes to play its cards close to its chest, so the OECD reports are a useful guide to the way Treasury is thinking. But when Treasury gets it wrong, don’t expect the OECD to correct them. In early 1990, for example, when anyone in the private business sector could have told them a catastrophic crash was under way, the OECD Report said “A severe recession is unlikely … the task for policy is to ensure that the necessary weakening of domestic demand continues”.

This report is also interesting reading for those who now deny that the current account was the policy target driving the credit squeeze that gave us ‘the recession we had to have’.

We in Brisvegas finally got to see Outfoxed on the ABC last night. It didn’t get a cinematic run because the Murdoch papers (a monopoly here) refused to run more than minimal advertising for it.

It was interesting. I haven’t seen enough of Fox to know whether it was a fair and balanced picture, but the traits depicted were exactly those of the RWDB bloggers who follow the same line as Fox on most issues[1]. Blatant partisanship is combined with a hypocritical pretence of devotion to the unvarnished truth. For “we report you decide”, insert “fact-checking their asses”.

There’s nothing wrong with partisanship, and I’m not shy about announcing my own position. But even partisans have an obligation to be truthful, while acknowledging that they are more likely to focus on facts that are consistent with their own world-view. From what I’ve seen, Fox fails this minimal test, while denying that what it presents is propaganda rather than news.

fn1. This isn’t true of all rightwing bloggers. Some engage in honest debate, and others make no pretence of objectivity. But Instapundit sets the pattern, and many others follow.

Greg Barns raises the prospect that liberal Liberals might cross the floor to block illiberal government legislation in the Senate. This will take one government senator if the rest of the Senate is opposed, or two if the government can line up an additional vote, say from Family First. As Barns observed, this happened a couple of times under Fraser

And during the 1980s, when the Liberal Party was in opposition, it was liberals such as Ian Macphee, Peter Baume and Fred Chaney who curtailed the impact of the Liberal Party’s social conservatives on matters such as immigration and women’s rights.

Of course Macphee lost preselection and Baume and Chaney were marginalised. But, as Dave Ricardo pointed out in recent comments, if you want to look at what’s happened to the 1980s liberal wing of the Liberal party, you need only look at its remaining representative in Parliament – Philip Ruddock.

Occasional commentator on this blog, Tony Healy, puts on his thinktank hat to criticise my latest piece in the Fin (Subscription required), writing for the (anti-open source) Institute for Policy Innovation. I argued that most innovation on the Internet had not been driven by patents and copyright, but by creative collaboration of which blogs are, for me, the paradigm example. Tony’s response starts with Google, which is fair enough. Although there are lots of oddities about Google’s business model, it’s a commercial product (as are its competitors) and it’s an essential part of the Internet.

His next claim, though, strikes me as simply bizarre. He says

The Internet was an academic curiosity until the (commercial) release in the mid-90s of Windows 95 which, for the first time provided transparent access to the Internet, vastly expanding the population that could access the Internet

I’m a veteran of the Mac-PC wars, and I’m confident that of all the many claims and counterclaims I heard before 1995 “PC users can’t access the Internet” was not one of them. It’s true that setting up peripherals of all kinds has become easier over the years and that “Plug and Play” was a big Mac advantage in general before W95 (and to some extent still is), but if it was as decisive as Tony suggests here, Microsoft would have been out of business long before 1995.

I’ve seen many accounts of the Internet in which Gates played a key role, but the decision they point to is the free release of Internet Explorer, in competition with Netscape. This doesn’t suit the case Tony is making and he doesn’t mention it.

So, I should modify my claim that nothing worthwhile came out of the dotcom mania. Search engines and Google in particular benefitted from dotcom money. This raises an interesting question for my more technically qualified readers. If there were no dotcom money around, could the usual collaborative processes of the Internet have produced something like Google, or would we still be relying on favorites lists and so on?